U.K. 10-year gilts snapped a nine-day decline after a government report showed British retail sales stagnated in November, underlining the fragility of the nation’s economic recovery.
Benchmark yields dropped from the highest since May and the pound was within one pence of the weakest in six months versus the euro after the Confederation of British Industry said in a separate yesterday that sales growth cooled this month. Gilts also climbed as demand for the safest assets rose on concern U.S. officials are struggling to reach an agreement to avert the fiscal cliff of more than $600 billion in tax increases and spending cuts.
“The recovery is going to be a long and drawn-out process,” said Jason Simpson, an interest-rate strategist at Banco Santander SA in London. “A lot of it is offshore driven with what’s happening with Treasuries and the bigger picture is playing a role. The bigger moves have been engineered by what’s going on globally, with risk appetite.”
The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 1.95 percent at 4:27 p.m. London time after rising to 1.99 percent yesterday, the highest since May 10. The 1.75 percent bond due in September 2022 gained 0.10, or 1 pound per 1,000-pound ($1,626) face amount, to 98.28.
Benchmark yields may climb to 2.90 percent in the next 12 months, Banco Santander’s Simpson said. Economists surveyed by Bloomberg News predict it will increase to 2.40 percent by the end of 2013.
Retail sales including fuel were unchanged last month, after sliding 0.7 percent in October, the Office for National Statistics said in London. The median prediction of 22 economists in a Bloomberg survey was for a 0.4 percent gain.
The CBI said yesterday that its gauge of annual sales growth fell to 19 in December from 33 in November. Anna Leach, head of economic analysis at the CBI, said that “weak spending power and uncertainty over the economic outlook are likely to remain key risks to the retail sector in 2013.”
U.K. gross domestic product rose 1 percent in the three months through September, according to a Bloomberg survey before the third estimate for the period is published tomorrow. The Bank of England maintained its target for quantitative easing this month as officials forecast “broadly flat” growth.
The pound was little changed at 81.30 pence per euro. It reached 81.68 pence yesterday, the weakest level since June. Sterling was 0.1 percent stronger at $1.6257.
“The cyclical drag on the U.K. economy is definitely something that is raising concern,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “That’s certainly something which is not positive for the pound.”
Britain’s currency has fallen 0.1 percent over the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro advanced 1.8 percent and the dollar fell 0.4 percent.
In the U.S., the White House warned business leaders yesterday that budget talks between President Barack Obama and House Speaker John Boehner are regressing. The two men haven’t talked since trading public statements yesterday, according to administration officials and congressional aides, who requested anonymity to discuss the negotiations.
Gilts returned 1.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 3.7 percent and Treasuries earned 1.8 percent.